Despite the political and economic storm clouds, Nedbank’s project listing provides a silver lining in South Africa

A large 160 percent jump in the value of announced projects in 2015 to R152.4 billion should benefit the construction sector and boost economic growth. 

The 160 percent jump in 2015 of the announced value of capital projects in South Africa in the latest Nedbank Capital Expenditure Project Listing to R152.4bn from R58.6bn in 2014 was good news for the embattled construction sector. South Africa has been battling with a perfect storm due to low commodity prices, the lowest annual rainfall since records started in 1904, loadshedding and the impact of policy uncertainty caused in part by having three Finance Ministers in four days.

In many ways, 2015 was similar to 1992 when the last major drought took its toll on agricultural production, commodity prices were low due to the 1990/92 global recession and there was much political uncertainty, as the white establishment was negotiating with the black liberation forces. Over 20,000 politically-motivated killings made parts of South Africa no-go areas for people of a different political persuasion.

It was in those dark days that mining house Gencor decided that it needed to lead by example and announced the largest private sector capital project up till then, the Alusaf Hillside aluminium smelter. In similar ways, the private sector in 2015 has upped its game and was responsible for two-thirds of the number of announced projects.

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Although the 2015 project value was an improvement on 2014, Nedbank said it was low by historical standards. Nedbank has been conducting the research since 1993 and the previous record was set in 2006 at R941.5bn in constant 2015 rand. The number of project announcements in 2014 fell to 68 from 92 in 2013 before recovering to 82 in 2015, and remained well below the record 217 announced in 1996.

“Local economic conditions remained lacklustre during 2015, which, together with high input costs and power supply shortages, weighed on business confidence and companies’ appetite to expand capacity,” Nedbank said.

Henry Laas, CEO of construction company Murray and Roberts also said: “Market conditions in the sectors within which Murray & Roberts operates, in the short to medium term, present growth challenges.”

Anecdotal evidence is that a fair number of building projects are being undertaken by smaller unlisted contractors, which is why cement sales rose by 7.8 percent year-on-year (y/y) in the first three quarters of 2015 despite the negative media headlines.Picture1

Another challenge facing the construction sector in 2014 was the fact that 89 percent of the R30 billion increase in the public sector capital spending went on procuring machinery, rather than on growing the construction sector, as the equipment intensive phase of building the new power stations took place and this has continued into 2015, as the civil works of the new Medupi and Kusile power stations are largely completed.

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